The Star Late Edition

World’s biggest economies must pay $7.6 trillion in maturing debt this year

Costs for borrowing set to increase

- Keith Jenkins and Anchalee Worrachate

GOVERNMENT­S of leading economies globally have more than $7.6 trillion (R61.3 trillion) of debt maturing this year, with most facing a rise in borrowing costs.

Led by Japan’s $3 trillion and the US’S $2.8 trillion, the amount coming due for the Group of Seven (G7) nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to Bloomberg data. Ten-year bond yields will be higher by yearend for at least seven of the countries, forecasts show.

Investors may demand higher compensati­on to lend to countries that struggle to finance increasing debt burdens as the global economy slows, surveys show. The Internatio­nal Monetary Fund (IMF) cut its forecast for growth this year to 4 percent from a prior estimate of 4.5 percent as Europe’s debt crisis spreads, the US struggles to reduce a budget deficit exceeding $1 trillion and China’s property market cools.

“The weight of supply may be a concern,” Ignis Asset Management money manager in Glasgow Stuart Thomson said on December 28.

“Rather than the

start

of the year being the problem, it’s the middle part of the year that becomes the problem. That’s when we see the slowdown in the global economy having its biggest impact.”

The amount needing to be refinanced rises to more than $8 trillion when interest payments are included.

Coming after a year in which Standard & Poor’s cut the US’S rating to AA+ from AAA and put 15 European nations on notice for possible downgrades, the competitio­n to find buyers is heating up. “It is a big number and obviously because many government­s are still in a deficit situation the debt continues to accumulate and that’s one of the biggest problems,” said Elwin de Groot of Rabobank Nederland.

While most of the world’s biggest debtors had little trouble financing their debt load last year, with Bank of America Merrill Lynch’s global sovereign broad market plus index gaining 6.1 percent, that may change.

Italy auctioned 7 billion (R73.2bn) of debt on December 29, less than the 8.5bn that was targeted. With an economy sinking into its fourth recession since 2001, Prime Minister Mario Monti’s government must refinance about $428bn of securities coming due this year, with another $70bn in interest payments.

Borrowing costs for G7 nations rose as much as 39 percent last year, based on forecasts of 10-year government bond yields by economists and strategist­s surveyed by Bloomberg. China’s 10-year yields might remain little changed, while India’s were projected to fall to 8.02 percent from about 8.39 percent.

The survey did not include estimates for Russia and Brazil.

After Italy, France has the next largest debt coming due this year, at $367bn, followed by Germany at $285bn.

Canada has $221bn, while Brazil has $169bn, the UK has $165bn, China has $121bn and India $57bn. Russia has the least debt maturing at $13bn.

Rising borrowing costs forced Greece, Portugal and Ireland to seek bailouts from the EU and IMF. Italy’s 10-year yields exceeded 7 percent last month, a level that preceded the request for aid from those three nations.

“The buyer base for peripheral Europe has obviously shrunk at the same time that the supply coming to the market is increasing, which is not a good combinatio­n,” said Michael Riddell, a fund manager at M&G Investment­s.

The two biggest debtors, Japan and the US, have shown little trouble attracting demand. Japan benefits by having a surplus in its current account, which is the broadest measure of trade and means that the nation does not need to rely on foreign investors to finance its budget deficits. The US benefits from the dollar’s role as the world’s primary reserve currency.

Japan’s 10-year bond yields, at less than 1 percent, are the second-lowest in the world, after Switzerlan­d, even though its debt is about twice the size of its economy.

The US attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds sold last year, the most since the government began releasing the data in 1992. The US drew an alltime high bid-to-cover ratio of 9.07 for $30bn of four-week bills it auctioned on December 20 even though they pay 0 percent interest.

With yields on 10-year treasuries below 2 percent, an increasing number of investors see little chance for US bonds to repeat last year’s gains of 9.79 percent. The US pays an average interest rate of about 2.18 percent on its outstandin­g debt, down from 2.51 percent in 2009, Bloomberg data show.

The median estimate of 70 analysts is for treasury 10-year note yields to rise to 2.6 percent by year-end from 1.94 percent at 10am London time yesterday. In Japan, the forecast for the nation’s benchmark note yield is 1.35 percent, while it is expected to rise to 2.5 percent in Germany, from 1.93 percent.

Central banks are bolstering demand by either keeping interest rates at record lows or reducing them, and by purchasing bonds through a policy know as quantitati­ve easing. – Bloomberg

 ??  ?? Tokyo’s central business district. Japan and the US are the world’s top debtors.
Tokyo’s central business district. Japan and the US are the world’s top debtors.

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